Task:
The purpose of this assignment is to explain core concepts related to cash distributions and capital structure. Read the Chapter 14 Mini Case on page 604-606 in Financial Management: Theory and Practice.
A. 1.What is meant by the term “distribution policy”? How has the mix of dividend payouts and stock repurchases changed over time?
2.The terms “irrelevance,” “dividend preference” (or “bird-in-the-hand”), and “tax effect” have been used to describe three major theories regarding the way dividend payouts affect a firm’s value. Explain these terms, and briefly describe each theory.
3.What do the three theories indicate regarding the actions management should take with respect to dividend payouts?
4.What results have empirical studies of the dividend theories produced? How does all this affect what we can tell managers about dividend payouts?
B.Discuss the effects on distribution policy consistent with: (1) the signaling hypothesis (also called the information content hypothesis) and (2) the clientele effect.
If the company were to recapitalize, then debt would be issued and the funds received would be used to repurchase stock. PizzaPalace is in the 40% state-plus-federal corporate tax bracket, its beta is 1.0, the risk-free rate is 6%, and the market risk premium is 6%.
A.Using the free cash flow valuation model, show the only avenues by which capital structure can affect value.
B. 1.What is business risk? What factors influence a firm’s business risk?
2.What is operating leverage, and how does it affect a firm’s business risk? Show the operating break-even point if a company has fixed costs of $200, a sales price of $15, and variable costs of $10
Read less
USA 
India